Judge Adds to Wall Street Banks' Woe

A federal judge ruled yesterday that claims brought by more than a thousand investors, alleging that Wall Street banks rigged initial public offerings during the internet boom, could go ahead.

Many of the biggest investment banks are already facing a deluge of claims related to other issues, including the bankruptcies of Enron and WorldCom, and allegations that research analysts offered biased advice to secure corporate banking fees.

The ruling by district judge Shira Scheindlin followed an attempt by the banks, including Goldman Sachs and Credit Suisse First Boston to quash the claims.

In her 238-page judgment, she said there was evidence of "a coherent scheme by underwriters, issuers and their officers to defraud the investing public".

The claim is one of the largest class action suits ever filed against the securities industry. It names 55 underwriting banks and 308 companies that issued shares. Lawyers for the investors said the damages could top $1bn.

The complaints argue that analysts manipulated the market and that investors allocated IPO shares were forced to buy further shares to keep the price high. They also claim that recipients of IPO shares gave kickbacks to the banks.

As a result of the verdict, the plaintiffs' lawyers can demand thousands of internal bank documents. During the dot.com frenzy, Wall Street made billions of dollars of fees underwriting IPOs for internet firms, many of which have since gone bust. Among the IPOs at issue are DoubleClick, Razorfish and Red Hat.

JP Morgan Chase has parted company with Mino Capossela, hired just a year ago to run its equities business in North America, as the investment wrestles with a slump in the stock market.